(i) What is meant by depreciation, and why is it important for a business to provide for depreciation?

(ii) A. Swain is a haulage contractor. On 1 January 20-6 he purchased three tipper lorries for £4,800 each. Mr Swain estimated that his lorries would have an effective working life of five years with a disposal value of £300 each. The straight line method of depreciation is to be used. The financial year ends on 31 December. One of the lorries kept breaking down and was sold on 1 January 20-8 for £2,500.

You are required to show the relevant entries for the years 20-6, 20-7 and 20-8 in the following ledger accounts:

(a) Lorries

(b) Lorries disposal

(c) Provision for depreciation on lorries